Investment Properties for College Students

college housingI was chatting with a neighbor – Mike — over the weekend. Mike’s daughter is a senior in high school and looking at a lot of different colleges. Mike is a successful dentist but he is still worried about the economy and the costs of putting his daughter through school, even though he has already pre-paid her tuition through a state investment program.

Mike’s main concern is the cost of room and board, especially if his daughter lives off campus, as he expects she will by her sophomore year. Of course, he also worries about his daughter’s safety and comfort while she is away at school. I suggested to Mike that one way to assuage his fears might be to purchase a condo near his daughter’s school (wherever that may be). That would save him some money – perhaps earn him some money in the longer term – and ensure a good environment for his daughter when she moves away from home for the first time. Mike and I talked for a while about this, and the pros, cons and factors for consideration are worth revisiting here. If you have a child going away to school soon, you may also want to consider the following factors that may weigh for or against buying a condo or house for your child while he or she is away from home.

Building Equity Instead of Debt

If you can afford the down payment on a small house or condo near your child’s school, such a purchase will allow you to apply your child’s rent or student housing payment towards the mortgage, insurance and maintenance costs. Home values near colleges and universities tend to hold their value better than a lot of other areas so, after four years (or longer if you have other kids in the college pipeline), you will have an investment property that you can either sell or continue to rent out. Assuming housing costs of about $6,000 per year, you should also have at least an additional $24,000 in equity in the property. As an added perk, your child will also have enjoyed the benefit of not needing to move his or her property in and out of a dorm every August and May.

Is Your Child Mature Enough to Be Off Campus?

Before you can think about buying an off-campus property for your child, you also need to be 100% confident that your child is sufficiently mature to be trusted with your investment in a condo or house. For this reason, a condo usually will make more sense since condos are less isolated than houses. That said, if your child can be trusted (i) not to throw wild parties, (ii) to handle basic maintenance, and (iii) to alert you to problems that the “landlord” needs to fix, your child may be ready to live in an investment property.

Is Your Child Social Enough to Be Off Campus?

A big part of the college experience is the socialization process. If your child is not outgoing, living off campus is much more likely to increase his or her isolation. In contrast, if your child is too social, living off campus is likely to turn your investment property into Party Central. Neither is good for your child and the latter is not good for you as the property owner. If you feel that your child can balance his academic and social needs while living off campus, however, an investment property near your child’s school can provide your child with a refuge when he or she needs calm and you with the financial benefits of a second property.

The Ability to Spread Costs

Especially after a student’s freshman year of school, your child should know with whom he or she wants to room for sophomore year. If your mortgage is $1,000 per month and your child brings in two roommates for a rent of $500 per month each, your mortgage is covered by your child’s roommates. Of course, you need to take the time to get to know your child’s friends before you can invite them to be roommates, but that is not a bad idea anyway!

Learning to be a Homeowner

Living in your investment property will force your child to learn how to manage a home. There will be bills to be paid. Is your child sufficiently mature to pay the bills on his or her own? When a light bulb needs to be changed, your child will need to go to the store to buy a new one. If there is a condo association meeting, you can require your child to attend. It will make the transition to full independence after college a lot easier and you will be able to help out when responsibilities crop up at exam time (even if you are helping out from long distance by paying bills, etc.).

Building Credit

If you put your child’s name on your mortgage as a co-signer, every time you make a mortgage payment, you are helping your child to build credit. The same is true, of course, when your child makes a rent payment to a third party landlord, but in this case, your child is building credit while you build equity.

A Home after College

If your child is thinking about getting a job near his college upon graduation, you may want to sell the condo to your child upon graduation so that your child can continue to live in his or her college home during the first few years of his or her job. Being able to set your child up as a real property owner soon after college will allow your child to save money and build equity while most of his or her friends and peers are still paying rent.

How Many Kids do You Have?

If you have more than one child, owning an investment property near a college that they all might attend may offer a housing option for more than one of your children. As long as your kids get along, they may even enjoy being roommates for part of their college experience when their years at school overlap.

Admittedly, an investment property is not a housing option for every college student. If, however, you have one or more responsible kids attending a college in an area where you can afford an appropriate investment property, buying a house or condo in which your kids can live during college may be a great option for you to consider.

What do you think? If you could afford it, would you consider an investment property as a college housing option? Would you worry more if your kids were the caretakers of your investment property? Would you be concerned that your kids would miss out on the college life if they did not live at school?

Image courtesy of StuSeeger

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8 Responses to Investment Properties for College Students

  1. lucyprice says:

    If you can afford to buy property near schools and as an investment it is a really good opportunity to make money in the long run. Great article.

  2. Christianne says:

    I understand where you are coming from in this article but I hate the idea. I will admit I’m biased but let me explain why. I have a condo in a new development. The developer is having issues selling the last units so he has rented them out to cover the HOA fees. Many of the renters are young. I’m mid to late thirties so not old-old but lead an extremely busy life (work 2 jobs, starting my own wine blog, going to school). These new renters treat our buildings like a frat house. We used to have a very quiet comminuty. I’ve been woken up at all hours with people congregatting outside to smoke and talk and sometimes puke their guts out. These renters cheapen the community. I speak to them about it and don’t raise a fuss until it’s fairly late. They don’t care. Not every renter is bad but the few bad ones are awful.

    I don’t believe these kids will necessarily treat the condo better because Mom and Dad own it. You’ve put forward a situation where Mom and Dad are covering tuition and worried about housing. Exactly what is the kid covering towards his college education?

    Furthermore, my day job is in finance (CFA). Homes are not a great financial investment. The article misses the tax treatment of the investment and follow-up costs of owning a home. Granted, condos are going to be relatively cheap right now. Who’s to say that you won’t be spending more money on repairs because Junior doesn’t know how to take care of it (or care enough to take care of it because they didn’t work all that hard to get it).

    Again, I realize I am biased because of my personal situation. The article hit a nerve :)

  3. Caleb Nelson says:

    I think that if you have the opportunity to own, rather than rent, you should take it. Like you said, building equity for yourself is always better than building equity for someone else.
    This may also be a good opportunity for a parent to help teach their child start a young real estate portfolio through cosigning.


  4. Hilary says:

    Are you sure about the credit-building point? I know with credit cards that is not the case (i.e. if you put your kid on your credit card, it won’t affect your kid’s credit at all). This is a recent change due to the fact that companies were forming that would allow people with bad credit to artifically inflate their score by getting a credit card with someone else.

  5. Homebody says:

    Um yeah, we had the same brilliant idea when our OD moved to Oregon and prices were so cheap next to California. We actually built a small home in a new development that 4 years later is now a rental. We will probably come out okay in the long run, but now wish we had not done it. We didn’t want to be long distance landlords. Luckily the tenants are attending the same school as our daughter, are 2 brothers and came recommended by our accountant.

  6. ThiNg says:

    I’m a well rounded, respectful and reasonable guy, but when I lived off campus with 4 ‘buddies’ for a term we did things to that house that would give you nightmares. Let me share some horror stories so you can go into this with your eyes open!

    1. One night we snuck over to a neighbours house and removed all of the storm doors from their house. We then screwed the doors into random entrances in our house – like from the kitchen into the living room!

    2. We had a themed party called ‘Popsicle Party’ and we turned off the heating and opened all of the windows in January (gets cold up here in Canada!) and then we all left the next morning for the weekend (went home) and forgot to turn the heating back on. Voila frozen water pipes!

    3. A friend on the same street came over one night and used expanding foam to seal all of the storm doors on our house so we couldn’t get out of the house in the morning for school (yes, I know, major fire hazard!), I had to climb out of my window to make it to class! It took 3 days of scrubbing with a wire brush to open the doors and I can’t even explain the damage to the metal!

    4. One of the tenants from the basement (didn’t know the guy), used the landlords fridges and freezers (chest freezers) at an outdoor festival for a weekend. They just showed up and took all the appliances, used them (I assume not carefully) and brought them back all dinged up and scratched.

    6. One time, in adjoining townhouses, we drilled holes through the walls to ‘share’ networking, cable, and phone lines. I’m talking about 3 inch holes (we had no craftsmanship skills!) in the basement walls (concrete cinder blocks).

    7. I can’t count the number of stoves, microwaves, etc that have been destroyed. One guy boiled a pot of water and then went to play a new video game. We cam running out of our rooms when the alarms went off, the POT had melted to the stove coils and the guy was still playing his game!

    8. A bunch of drunk guys at our BBQ started a game of shot put in the back using a bowling ball. The lawn looked like a meteor shower zone, and the game ended in the complete decimation of the aluminum garden shed. Picture bowling ball sized holes aluminum swiss cheese.

    Thinking about renting to students? BE A LOCAL LANDLORD.

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  8. Philip Parsons says:

    I think it’s a great idea if you can afford it to get a condo nearby, and ofcourse you can always rent it out on vacation

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